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Circuit courts take aim at False Claims Act

It’s no secret the False Claims Act (FCA) still is the weapon of choice for health care fraud investigators. The number of qui tam cases skyrocketed from 17 in 1992 to more than 300 in 1999, and more than $3 billion has been recovered by the government. But now the "punitive nature" of the FCA is coming under scrutiny by several circuit courts.

In March, a panel of the Ninth Circuit ruled that because FCA penalties and damages are punitive, they must be analyzed under the Eighth Amendment to determine whether they violate the Excessive Fines Clause of the Constitution.

The Ninth Circuit cited the Supreme Court’s language in last summer’s Stevens case, in which the court said the current version of the FCA imposes damages that are "essentially punitive in nature." False Claims expert John Boese of Fried, Frank in Washington, DC, says Justice Antonin Scalia launched "a potentially revolutionary trend in FCA jurisprudence" when he called FCA damages "essentially punitive."

Boese notes that Scalia’s language also was at the heart of a ruling recently issued by a panel of the Fifth Circuit Court of Appeals, vacating a $22 million FCA jury verdict against the Orleans Parish School Board.

While the Ninth Circuit affirmed liability, it had "obvious problems" with the penalty, explains Patric Hooper, of Hooper Lundy in Los Angeles. In fact, it ruled that both aspects of the FCA — treble damages and statutory penalties — are subject to review to determine if they are excessive, he notes. "Both have a punitive nature and neither one is purely remedial," he argues.

"The court has to decide which part is punitive and which part is remedial,"says Hooper. "The court has not said there is something wrong with it being punitive; it has just said that it is punitive." Unfortunately, the Ninth Circuit did not decide that issue but instead handed it back to the district court.

The Ninth Circuit case involved a physical therapy clinic that allegedly ran afoul of Medicare payment guidelines. The clinic was accused of bilking Medicare for $58,000 over five years. The trial court imposed damages of $730,000, even though that number could technically have run as high as several million, according to the statute.

Boese says the critical fact for private defendants in FCA cases is that two different circuit courts of appeal have reversed lower court decisions after concluding that the FCA’s treble damages are punitive. "This is clearly a trend that must be followed carefully by all practitioners," he says.

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